The proposed deal to sell NB Power's generation assets to Hydro-Québec fell apart over Quebec's concerns about unanticipated costs, according to the two provincial premiers.

New Brunswick Premier Shawn Graham announced in the legislative assembly Wednesday that the deal to sell NB Power's generation assets to Hydro-Québec for $3.2 billion was dead.

"That is why it is with so much regret that I am announcing this morning that we are no longer proceeding with discussions to finalize the energy agreement with Hydro-Québec," Graham told the legislature.

"I continue to believe that the agreement proposed in October and the amendments inspired by New Brunswickers that we brought forward in January were in the best interests of our province," Graham said.

"However, over the past several weeks as we worked to take that agreement and turn it into a full legal document, Hydro-Québec has asked for changes to the agreement that would have unacceptably taken away some of the value and increased some of the risks for New Brunswickers."

Quebec Premier Jean Charest told reporters Wednesday his province pulled out after its power utility found unanticipated risks and costs related to matters like dam security and water levels.

After due diligence was done, he said Hydro-Québec decided that "we were beyond what was acceptable."

Graham said he has no regrets in pushing the power deal.

"There are no guarantees in life. You can't win every time you take the field," Graham said.

"But you can never succeed from the sidelines. I will not retreat to the sidelines just because this didn't work out."

Premiers met over deal

Graham and Charest met Tuesday to discuss changes that were being proposed to the energy deal.

The New Brunswick premier said Hydro-Québec found out in its research that there were more risks than it was willing to take on and the two sides could not agree on how to change details of the sale.

"This change in their position meant that the terms of our agreement in principle could not be met. Our government could not accept that," he told the legislature.

The Quebec premier said the asking price didn't reflect the assets the utility was going to acquire.

"The deal didn't work out, and that's too bad. We hoped it would, and I think we all were in this with good faith," Charest said.

"This won't prevent [Quebec from working with New Brunswick], and Hydro-Quebec will continue to deploy its energy strategy, including exporting."

Newfoundland and Labrador Premier Danny Williams, who had criticized the deal since it was announced, said Wednesday the rest of Canada should help New Brunswickers pay down their provincial debt so they avoid making any deal with Hydro-Québec that would "skin them alive."

Williams has been sharply critical of Hydro-Québec for years, denouncing the utility and the Quebec government for what he called obstructions of Newfoundland and Labrador's plans to develop the Lower Churchill hydroelectric megaproject in Labrador.

On Wednesday, Williams called Hydro-Québec "ruthless" and agreed with a reporter's suggestion that New Brunswick had dodged a bullet.

'We will keep moving forward'

Graham said the New Brunswick government will "take a moment to take a step back" and consider what should be done with the utility.

"We may have closed the door on an energy agreement with Hydro-Québec. But I know that new doors of opportunity have opened before us," Graham said.

"We will not look back, we will keep moving forward because that is what we were elected to do and that is what we must do to grow our province."

Progressive Conservative Leader David Alward said the government's decision to quash the agreement is a victory for all of those people who fought the sale.

"This is a wonderful day for democracy in New Brunswick," Alward said.

Yves Gagnon, a University of Moncton professor and one of the loudest opponents to the proposed energy agreement, said it was a bad deal and the New Brunswick government did a poor job of selling it.

With the proposal now off the table, Gagnon said there are opportunities to move forward with reforming the energy sector.

"I think we need to work to restructure the energy sector both in New Brunswick but also in the Maritime region," Gagnon said.

"I think we need to do this in New Brunswick, first of all, by doing an energy policy, a policy that we don't have in New Brunswick. We do not have a roadmap for the development of the energy sector."

Gagnon said this energy roadmap should integrate renewable energy options while phasing out fossil fuel plants. He said the provincial government must use NB Power for the economic and environmental well-being of its citizens.

Several setbacks

The Liberal government has faced a series of embarrassing setbacks throughout the approximately five-month period since the first power pact was announced.

Graham initially faced a backlash from Williams and Nova Scotia Premier Darrell Dexter over how the proposed agreement could affect their ability to get access for their electricity in the power-hungry New England market.

Early in the new year, three cabinet ministers and two MLAs told Graham during a caucus meeting they would not vote for the original power deal. Two days later, Graham announced a revised agreement.

Under the deal, Hydro-Québec would have acquired most of the province's power-generation assets, but New Brunswick would maintain control of transmission and distribution.

New Brunswick's residential ratepayers were to get a five-year rate freeze. Medium-sized industries would have seen a roughly 15 per cent cut in power rates and large industrial customers a reduction in power prices by roughly 23 per cent.

The proposed sale had caused a split in the Liberal government.

Graham asked Tourism and Parks Minister Stuart Jamieson to quit cabinet on Feb. 5 over his insistence that a referendum be held over the issue.

Liberal MLAs and cabinet ministers faced a barrage of protests outside their constituency offices. At least two protests gathered more than 1,000 people on the lawn of the legislature in Fredericton.

Opponents to the proposed deal also held public forums to debate the deal and possible alternatives to selling the Crown corporation.

The most recent Corporation Research Associates poll suggested 55 per cent of New Brunswickers were dissatisfied with the Graham government.